Zero to One
Review by Unity Ivongbe
Author: Peter Thiel
Who wants to move from Zero to One?
….come along.
A lot of times, my decision to read a book or not is usually made by checking up who authored it (and I think it is the same with a lot of people). We want to be sure that whosoever we decide to open our minds to has earned the right to be heard. It is a wise thing to do, in my opinion. On less occasions, I make the decision on the basis of subtle impressions like title of the book, illustrations used, who wrote the foreword, packaging & design, reviews et cetera.
For this book, the decision was based on the latter. Solely because of the title I must say. It caught my attention outrightly. I wanted to see what it was about. And I am happy I did because it was clear value for time.
Now, meet Peter Thiel. First time exchange for me and he sounded like somebody I should have met much earlier than now. His thoughts are mind stretching I must confess. His wisdom is deep and valuable for not just entrepreneurs & start-uppers but for anyone who wants to do something worth talking about. Peter Andreas Thiel is an American entrepreneur, venture capitalist(with investment in mega companies like Facebook and Palantir), philanthropist, political activist, and author.
Now back to my question….do you want to move from zero to one? Find out what this means…first with some excerpts below and next by getting a copy if you can.
Excerpts:
• Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.
– Doing what we already know how to do takes the world from 1 to n (infinity), adding more of something familiar. But every time we create something new, we go from 0 to 1.
– The best paths are new and untried;
• The single most powerful pattern I have noticed is that successful people find value in unexpected places, and they do this by thinking about business from first principles instead of formulas.
• In the most minimal sense, the future is simply the set of all moments yet to come.
• Progress can take one of two forms. Horizontal or extensive progress means copying things that work—going from 1 to n (globalization). Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things—going from 0 to 1 (technology). Vertical progress is harder to imagine because it requires doing something nobody else has ever done. If you take one typewriter and build 100, you have made horizontal progress. If you have a typewriter and build a word processor, you have made vertical progress.
• A startup is the largest group of people you can convince of a plan to build a different future. A new company’s most important strength is new thinking – they must question received ideas and rethink business from scratch;
• …. A company could create a lot of value without becoming very valuable itself. Creating value is not enough—you also need to capture some of the value you create. Eg Google brought in $50 billion in 2012 (versus $160 billion for the airlines in the US), but it kept 21% of those revenues as profits—more than 100 times the airlines industry’s profit margin that year. Google makes so much money that it’s now worth three times more than every U.S. airline combined.
Antidote:
“Focus on product, not sales if your product requires advertising or salespeople to sell it, it’s not good enough: technology is primarily about product development, not distribution”. “If you want to create and capture lasting value, don’t build an undifferentiated commodity business”
• Monopolies like Google can keep innovating (& inventing) because profits enable them to make the long-term plans and to finance the ambitious research projects that firms locked in competition can’t dream of.
• “All happy families are alike; each unhappy family is unhappy in its own way.” Business is the opposite. All happy companies are different: each one earns a monopoly by solving a unique problem. All failed companies are the same: they failed to escape competition”.
• More than anything else, competition is an ideology—the ideology—that pervades our society and distorts our thinking. We preach competition, internalize its necessity, and enact its commandments; and as a result, we trap ourselves within it—even though the more we compete, the less we gain. It is beyond an economic concept….hard to find an healthy competition. It is usually a race to the bottom.
• Why do people compete with each other? Marx and Shakespeare provide two models for understanding almost every kind of conflict. According to Marx, people fight because they are different. (The greater the differences, the greater the conflict). To Shakespeare, by contrast, all combatants look more or less alike. It’s not at all clear why they should be fighting, since they have nothing to fight about.
• Winning is better than losing, but everybody loses when the war isn’t one worth fighting.
• Escaping competition will give you a monopoly, but even a monopoly is only a great business if it can endure in the future.
• The value of a business today is the sum of all the money it will make in the future. (Secret of Twitters huge valuation….even though not making money today);
• For a company to be valuable it must grow and endure, but many entrepreneurs focus only on short-term growth. They have an excuse: growth is easy to measure, but durability isn’t.
• If you focus on near-term growth above all else, you miss the most important question you should be asking: will this business still be around a decade from now? Numbers alone won’t tell you the answer; instead you must think critically about the qualitative characteristics of your business.
• You either build a completely new stuff, eg, a drug to safely eliminate the need for sleep, or a cure for baldness, which for example, would certainly support a monopoly business. Or you can radically improve an existing solution: once you’re 10x better, you escape competition.
• Every monopoly is unique, but they usually share some combination of the following characteristics: proprietary technology, network effects, economies of scale, and branding (and for this, substance should precede branding);
• Originally, “disruption” was a term of art to describe how a firm can use new technology to introduce a low-end product at low prices, improve the product over time, and eventually overtake even the premium products offered by incumbent companies using older technology. It is not a call for a fight with big older companies – that may set you up for a fight you cannot win. An unhealthy competition.
• The future is a matter of design and not chance.
• Talking about how different parts of the world are engaging the future: indefinite pessimism (Europe); definite pessimism (China), definite optimism (US in the 60s) and indefinite optimism (US now);
• Every other country is afraid that China is going to take over the world; but China is the only country afraid that it won’t. Now talk about definite pessimism!
• To an indefinite optimist, the future will be better, but he doesn’t know how exactly, so he won’t make any specific plans. He expects to profit from the future but sees no reason to design it concretely, so he tries to take the agile adaptation approach. Not the best!
• Making small changes to things that already exist might lead you to a local maximum, but it won’t help you find the global maximum
• “When Yahoo! offered to buy Facebook for $1 billion in July 2006, I thought we should at least consider it. But Mark Zuckerberg walked into the board meeting and announced: “Okay, guys, this is just a formality, it shouldn’t take more than 10 minutes. We’re obviously not going to sell here.” Mark saw where he could take the company, and Yahoo! didn’t. A business with a good definite plan will always be underrated in a world where people see the future as random. Defining the future and having some form of long term planning is critical;
• Power law….law of exponential growth is the idea behind companies who take the world by storm, they come into the market and either take a monopolistic position or they become the last mover;
• “Contrarian question: what important truth do very few people agree with you on?; Recall the business version of our contrarian question: what valuable company is nobody building?” – your answer to this might just be the beginning of the next best product or service that the world has not seen;
• In order to be happy, every individual “needs to have goals whose attainment requires effort, and needs to succeed in attaining at least some of his goals.” This goals can be divided into three groups:
1. Goals that can be satisfied with minimal effort (easy);
2. Goals that can be satisfied with serious effort (hard/secret); and
3. Goals that cannot be satisfied, no matter how much effort one makes (impossible).
(Ted Kaczynski)….The trichotomy of the easy, hard and the impossible.
• If you think something hard is impossible, you’ll never even start trying to achieve it. Belief in secrets is an effective truth. The actual truth is that there are many more secrets left to find, but they will yield only to relentless searchers. There is more to do in science, medicine, engineering, and in technology of all kinds.
• Great companies can be built on open but unsuspected secrets about how the world works.
• There are two kinds of secrets: secrets of nature and secrets about people. Natural secrets exist all around us; to find them, one must study some undiscovered aspect of the physical world. Secrets about people are different: they are things that people don’t know about themselves or things they hide because they don’t want others to know. So when thinking about what kind of company to build, there are two distinct questions to ask: What secrets is nature not telling you? What secrets are people not telling you?
…. Secrets about people are relatively underappreciated. Maybe that’s because you don’t need a dozen years of higher education to ask the questions that uncover them: What are people not allowed to talk about? What is forbidden or taboo?
• The secret of monopoly: competition and capitalism are opposites and inversely related;
• The best place to look for secrets is where no one else is looking. Most people think only in terms of what they’ve been taught; schooling itself aims to impart conventional wisdom. So you might ask: are there any fields that matter but haven’t been standardized and institutionalized?
• The best entrepreneurs know this: every great business is built around a secret that’s hidden from the outside. A great company is a conspiracy to change the world; when you share your secret, the recipient becomes a fellow conspirator.
• Thiel’s law: a start-up messed up at its foundation cannot be fixed.
• Founders should share a prehistory before they start a company together —otherwise they’re just rolling dice. In the way you need good people who get along, but you also need a structure to help keep everyone aligned for the long term. It’s not just about technical abilities
• Three structural concepts to consider: • Ownership: who legally owns a company’s equity? • Possession: who actually runs the company on a day-to-day basis? • Control: who formally governs the company’s affairs? A typical start-up allocates ownership among founders, employees, and investors. The managers and employees who operate the company enjoy possession. And a board of directors, usually comprising founders and investors, exercises control.
• A board of three is ideal. Your board should never exceed five people, unless your company is publicly held. In the boardroom, less is more.
• As a general rule, everyone you involve with your company should be involved full-time. Sometimes you’ll have to break this rule; it usually makes sense to hire outside lawyers and accountants, for example. However, anyone who doesn’t own stock options or draw a regular salary from your company is fundamentally misaligned. At the margin, they’ll be biased to claim value in the near term, not help you create more in the future. That’s why hiring consultants doesn’t work. Part-time employees don’t work. Even working remotely should be avoided, because misalignment can creep in whenever colleagues aren’t together full-time, in the same place, every day. If you’re deciding whether to bring someone on board, the decision is binary (white or black). Ken Kesey was right: you’re either on the bus or off the bus.
• Start-ups don’t need to pay high salaries because they can offer something better: part ownership of the company itself. Equity is the one form of compensation that can effectively orient people toward creating value in the future. Giving everyone equal shares is usually a mistake: every individual has different talents and responsibilities as well as different opportunity costs, so equal amounts will seem arbitrary and unfair from the start.
• Equity is a powerful tool precisely because of these limitations. Anyone who prefers owning a part of your company to being paid in cash reveals a preference for the long term and a commitment to increasing your company’s value in the future. Equity can’t create perfect incentives, but it’s the best way for a founder to keep everyone in the company broadly aligned.
• Most fights inside a company happen when colleagues compete for the same responsibilities. Start-ups face an especially high risk of this since job roles are fluid at the early stages.
“The best thing I did as a manager at PayPal was to make every person in the company responsible for doing just one thing”.
• Advertising doesn’t exist to make you buy a product right away; it exists to embed subtle impressions that will drive sales later. Anyone who can’t acknowledge its likely effect on himself is doubly deceived.
• Like acting, sales works best when hidden. This explains why almost everyone whose job involves distribution—whether they’re in sales, marketing, or advertising—has a job title that has nothing to do with those things. People who sell advertising are called “account executives.” People who sell customers work in “business development.” People who sell companies are “investment bankers.” And people who sell themselves are called “politicians.” There’s a reason for these re-descriptions: none of us wants to be reminded when we’re being sold to.
• If you’ve invented something new but you haven’t invented an effective way to sell it, you have a bad business—no matter how good the product.
• Superior sales and distribution by itself can create a monopoly, even with no product differentiation.
• Advertising can work for start-ups, too, but only when your customer acquisition costs (CAC) and customer lifetime value (CLV) make every other distribution channel uneconomical.…… No early-stage start-up can match big companies’ advertising budgets.
• A product is viral if its core functionality encourages users to invite their friends to become users too…. This isn’t just cheap— it’s fast, too. The ideal viral loop should be as quick and frictionless as possible.
• ….. poor sales rather than bad product is the most common cause of entrepreneurial failure. You can never expect people to buy a superior product merely on its obvious merits without any distribution strategy, you should never assume that people will admire your company without a public relations strategy.
• Computers are complements for humans, not substitutes. The most valuable businesses of coming decades will be built by entrepreneurs who seek to empower people rather than try to make them obsolete. As computers become more and more powerful, they won’t be substitutes for humans: they’ll be complements.
• But the most valuable companies in the future won’t ask what problems can be solved with computers alone. Instead, they’ll ask: how can computers help humans solve hard problems? Complementarity is the game-changer;
• One or more of the seven questions that every business must answer:
1. The Engineering Question: Can you create breakthrough technology instead of incremental improvements?
2. The Timing Question: Is now the right time to start your particular business?
3. The Monopoly Question: Are you starting with a big share of a small market?
4. The People Question: Do you have the right team?
5. The Distribution Question: Do you have a way to not just create but deliver your product?
6. The Durability Question: Will your market position be defensible 10 and 20 years into the future?
7. The Secret Question: Have you identified a unique opportunity that others don’t see
• Customers won’t care about any particular technology unless it solves a particular problem in a superior way. And if you can’t monopolize a unique solution for a small market, you’ll be stuck with vicious competition
• As for the durability question, every entrepreneur should plan to be the last mover in her particular market.
• This philanthropic approach to business starts with the idea that corporations and non-profits have until now been polar opposites: corporations have great power, but they’re shackled to the profit motive; non-profits pursue the public interest, but they’re weak players in the wider economy. Social entrepreneurs aim to combine the best of both worlds and “do well by doing good.” Usually they end up doing neither. The ambiguity between social and financial goals doesn’t help.
• An entrepreneur can’t benefit from macro-scale insight unless his own plans begin at the micro-scale.
• The most important task in business—the creation of new value—cannot be reduced to a formulas to be applied by professionals. Personality is important; StrongFounderPersonality;
• As a founder, to believe that in yourself is invested with divine self-sufficiency is not the mark of a strong individual, but of a person who has mistaken the crowd’s worship—or jeering—for the truth. The single greatest danger for a founder is to become so certain of his own myth that he loses his mind.
• Without new technology to relieve competitive pressures, stagnation is likely to erupt into conflict. In case of conflict on a global scale, stagnation collapses into extinction.
• Our task today is to find singular ways to create the new things that will make the future not just different, but better—to go from 0 to 1. The essential first step is to think for yourself. Only by seeing our world anew, as fresh and strange as it was to the ancients who saw it first, can we both re-create it and preserve it for the future.
Anyone can choose to ignore this book and that will be fine. But not entrepreneurs. It is also not just for entrepreneurs but for those who aspire to be one and for those who work closely with start-ups and small businesses in any capacity….intrapreneurs (employee change makers) are also not exempted.
That’s it.
Zero to one. It is possible!
#The Entrepreneur’s bible; #ChangeMakers; #QuantumLeap; #ZeroToOne; #CreatingChange
